Question 2 - A 3-year bond with a yield of 5% continuously compounded pays a 8% coupon per annum with semi-annual payments.

(a) Compute the bond price.

(b) Compute the bond duration. What does the duration measure?

(c) Use the duration to calculate the effect on the bonds price of a 0.2% decrease in its yield.

(d) Let us assume that the yield of 5% is semi-annual compounded (not continuously compounded). Show how to adjust the formulae in (a)-(b)-(c) to take this into account. You have to list all the formulae/changes, not do all the calculations.